Document Content

CIRCULAR No. 99/2004/TT-BTC OF OCTOBER 19, 2004 GUIDING THE IMPLEMENTATION OF THE GOVERNMENT’S DECREE No. 43/2001/ND-CP OF AUGUST 1, 2001 PRESCRIBING THE FINANCIAL REGIME FOR INSURANCE ENTERPRISES AND INSURANCE BROKERAGE ENTERPRISES

Pursuant to December 9, 2000 Insurance Business Law No. 24/2000/QH10;

Pursuant to the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises;

Pursuant to the Government's Decree No. 77/2003/ND-CP of July 1, 2003 defining the functions, tasks, powers and organizational structure of the Finance Ministry;

The Ministry of Finance hereby provides the following detailed guidance:

I. CHARTER CAPITAL

1. The provisions on charter capital of insurance enterprises or insurance brokerage enterprises shall comply with Article 5 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises.

2. Contributed charter capital of insurance enterprises or insurance brokerage enterprises is the charter capital amount actually contributed by the owners to the enterprises.

3. Within 15 days after the date they are granted the establishment and operation licenses, insurance enterprises or insurance brokerage enterprises must contribute a charter capital at a level not lower than the legal capital level prescribed in Article 4 of the Government’s Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises.

4. Throughout the process of operation, insurance enterprises and insurance brokerage enterprises must maintain their charter capital at a level not lower than the legal capital level prescribed in Article 4 of the Government’s Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises. If, for any reasons, their charter capital decreases to a level lower than the legal capital level prescribed in Article 4 of the Government’s Decree No. 43/2001/ND-CP of August 1, 2001, insurance enterprises or insurance brokerage enterprises must make additions to the contributed charter capital so that it is not lower than the said legal capital level.

II. ESCROW AMOUNTS

1. The escrow depositing by insurance enterprises shall comply with Article 6 of the Government’s Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises.

2. Where the escrow amounts of insurance enterprises are lower than the level set in Clause 2, Article 6 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises, such insurance enterprises shall have to supplement the escrow amounts as prescribed.

3. Where the escrow amounts of insurance enterprises are higher than the level set in Clause 2, Article 6 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises, such insurance enterprises may readjust their escrow amounts as prescribed.

III. INSURANCE OPERATION RESERVES

1. Insurance operation reserves are amounts which enterprises must set up in order to cover pre-determined insurance liabilities arising from the signed insurance contracts.

2. Insurance enterprises must set up sufficient insurance operation reserves for each insurance operation and each insurance contract corresponding to their retained liability proportion.

3. For non-life insurance business enterprises:

3.1. Non-life insurance business enterprises must set up various insurance operation reserves as provided for in Article 8 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises.

3.2. Non-life insurance business enterprises may select and register with the Ministry of Finance the method of making deductions to set up non-life insurance operation reserves under the guidance at Point 3.4, Clause 3, Section III of this Circular or other more prudent methods of making deductions for setting up operation reserves for application after they are approved in writing by the Ministry of Finance.

3.3. In a fiscal year, non-life insurance business enterprises must not change the method of making deductions to set up insurance operation reserves. Where they shift to another method for the subsequent fiscal year, they must seek the Finance Ministry's approval before applying such method.

3.4. Methods of setting up non-life insurance operation reserves:

3.4.1. The unearned premium reserve:

a/ The method of setting up the reserve representing a percentage of total insurance premiums:

+ For insurance of cargoes transported by land, sea, river, railway and air: The reserve shall be equal to 25% of total insurance premiums of this insurance operation, retained in the fiscal year.

+ For other insurance operations: The reserve shall be equal to 50% of total insurance premiums of these insurance operations, retained in the fiscal year.

+ Non-life insurance enterprises shall not apply the method of setting up the reserve representing a percentage of total insurance premiums to insurance contracts concluded from January 1, 2006 afterwards.

b/ The method of setting up the reserve according to coefficients of insurance contract terms:

(i) Method 1/8: This method assumes that insurance premiums under insurance contracts issued in a quarter by an insurance enterprise are distributed evenly among the months of the quarter, in other words, all insurance contracts of a given quarter are assumed to be effective in the midst of that quarter. The unearned premium reserve is calculated according to the following formula:

Unearned

premiums

reserve

=

Retained

insurance

premium

x

Proportion of

unearned insurance

premiums

For example: The unearned premium reserve as of December 31, 2004 is calculated as follows:

+ For insurance contracts with a term of up to one year and still effective on December 31, 2004:

Time when insurance contracts cease to be effective

Proportion of unearned insurance premiums

Year

Quarter

2005

I

1/8

II

3/8

III

5/8

IV

7/8

+ For insurance contracts with a term of over 1 year: The proportion of unearned insurance premiums, according to the above-said formula, shall have a denominator being the insurance contract’s term (expressed in years) multiplied by 8. The unearned premium reserve as of December 31, 2004 of insurance contracts with a two-year term and still effective on December 31, 2004 is calculated as follows:

Time when insurance contracts cease to be effective

Proportion of unearned insurance premiums

Year

Quarter

2005

I

1/16

II

3/16

III

5/16

IV

7/16

2006

I

9/16

II

11/16

III

13/16

IV

15/16

(ii) Method 1/24: This method assumes that insurance premiums under insurance contracts issued in a month by an insurance enterprise are distributed evenly in the month, in other words, all insurance contracts of a given month are assumed to be effective in the midst of that month. The unearned premium reserve is calculated according to the following formula:

Unearned

premium

reserve

=

Retained

insurance

premium

x

Proportion of

unearned insurance

premiums

For example: The unearned premium reserve as of December 31, 2004 is calculated as follows:

+ For insurance contracts with a term of up to one year and still effective on December 31, 2004:

Time when insurance contracts cease to be effective

Proportion of unearned insurance premiums

Year

Month

2005

1

1/24

2

3/24

3

5/24

4

7/24

5

9/24

6

11/24

7

13/24

8

15/24

9

17/24

10

19/24

11

21/24

12

23/24

+ For insurance contracts with a term of over 1 year: The proportion of unearned insurance premiums, according to the above-said formula, shall have a denominator being the insurance contract’s term (expressed in years) multiplied by 24. The unearned premium reserve as of December 31, 2004 of insurance contracts with a two-year term and still effective on December 31, 2004 is calculated as follows:

Time when insurance contracts cease to be effective

Proportion of unearned insurance premiums

Year

Month

2005

1

1/48

2

3/48

3

5/48

4

7/48

5

9/48

6

11/48

7

13/48

8

15/48

9

17/48

10

19/48

11

21/48

12

23/48

2006

1

25/48

2

27/48

3

29/48

4

31/48

5

33/48

6

35/48

7

37/48

8

39/48

9

41/48

10

43/48

11

45/48

12

47/48

c/ The method of setting up the premium reserve on a daily basis: This method may be applied to calculating the unearned premium reserve for contracts with any term according to the following general formula:

Unearned

premium

reserve

=

Number of remaining
Retained insurance premium

x

days of the insurance contract

Total number of days of insurance under the insurance contract

3.4.2. The compensation reserve:

a/ The method of setting up the compensation reserve according to compensation claim dossiers:

With this method, non-life insurance enterprises must set up two reserves:

- The compensation reserve for unsettled claims: To be set up for each insurance operation by the method of estimating the amount to be compensated for each case of loss falling under the insurance liability, which has been notified or claimed for compensation by the insurance enterprises but has not yet been settled by the end of the fiscal year.

- The compensation reserve for losses already arisen and falling under the insurance liability but not yet notified or claimed for compensation: To be set up for each insurance operation according to the following formula:

Reserve for

arisen losses

not yet notified or claimed for compensation of the current fiscal year preceding fiscal year

=

Total compensation
money for arisen

losses not yet

notified or claimed for compensation of the last three fiscal years

x

Incurred compensation money of the current fiscal year

x

Net turnover of business activities of the current fiscal year

x

Average delay time compensation claims of the current fiscal year

Total compensation money incurred in the last three fiscal years

Net turnover of business activities of the preceding fiscal year

Average delay time of compensation claims of the

in which:

+ The incurred compensation money of a fiscal year comprises the compensation money actually paid in the year plus the compensation reserve for unsettled compensation claim by year end.

+ The average delay time of compensation claims is the average time counting from the time a loss occurs to the time an insurance enterprise receives the loss notice or compensation claim dossier (calculated in days).

Non-life insurance business enterprises may apply the statistical method to setting up the compensation reserve for arisen losses falling under the insurance liability but not yet claimed for compensation for insurance contracts concluded before January 1, 2006.

b/ The method of setting up the compensation reserve according to the compensation co-efficient:

This method is applied to setting up the compensation reserve for each insurance operation on the principle of using past compensation statistics for calculating compensation co-efficients in order to predict the amounts insurance enterprises shall have to compensate in the future. In order to calculate the compensation reserve by this method, non-life insurance enterprises should analyze the past statistics to ensure that the compensation payments over the years adhere to stable laws and see no irregularity.

For example: To calculate the compensation reserve by the compensation co-efficient method for a certain insurance operation as of December 31, 2004:

Step 1: Count up all compensation amounts actually paid by December 31,2004 by the year of loss occurrence and the year of compensation according to the following table (statistics used for the demonstration purpose only):

Unit: VND million

Year of loss occurrence

Year of compensation

0

1

2

3

4

5

6

7

1997

5,445

3,157

2,450

1,412

600

352

431

185

1998

5,847

3,486

1,366

848

1,045

1,054

369

1999

5,981

4,854

1,948

2,554

1,680

489

2000

7,835

4,453

3,888

3,335

2,088

2001

9,763

6,517

3,563

3,984

2002

10,745

6,184

4,549

2003

14,137

8,116

2004

15,162

According to the compensation data table above (line of the year 1997):

The compensation amount actually paid in 1997 (compensation year 0) for losses occurring in 1997 is VND 5,445 million.

The compensation amount actually paid in 1998 (compensation year 1) for losses occurring in 1998 is VND 3,157 million.

The compensation amount actually paid in 1999 (compensation year 2) for losses occurring in 1999 is VND 2,450 million.

---------------

The count of the compensation amounts paid in the following years for losses occurring in 1997 is conducted in the same way as demonstrated above till there is no compensation amount incurred. In this example, after 2004 (compensation year 7) there is no compensation amount to be paid for losses occurring in 1997.

The count of compensation amounts paid for losses occurring in 1998, 1999… 2004 shall be conducted in the same way as for 1997. The number of past years necessary for the count of compensation statistics shall depend on the length of time from the time of occurrence of losses till the time such losses are fully compensated for. Normally, liability insurance operations have more past years necessary for the count of compensation statistics than those of other insurance operations, such as property insurance…

+ Step 2: Convert the compensation statistics table by year made above into the cumulative compensation statistics table, in which the cumulative compensation statistic of each year is the total of compensation amounts actually paid in that year and those paid in the preceding years.

Unit: VND million

Year of loss occurrence

Year of compensation

0

1

2

3

4

5

6

7

1997

5,445

8,602

11,052

12,464

13,064

13,416

13,847

14,032

1998

5,847

9,333

10,699

11,547

12,592

13,646

14,015

1999

5,981

10,835

12,783

15,337

17,017

17,506

2000

7,835

12,288

16,176

19,511

21,599

2001

9,763

16,280

19,843

23,827

2002

10,745

16,929

21,478

2003

14,137

22,253

2004

15,162

According to the cumulative compensation statistics table above (line of the year 1997):

The cumulative compensation amount of 1997 (compensation year 0) for losses occurring in 1997 is VND 5,445 million.

The cumulative compensation amount of 1998 (compensation year 1) for losses occurring in 1998 is VND 3,157 million + VND million 5,445 = VND 8,602 million.

The compensation amount actually paid in 1999 (compensation year 2) for losses occurring in 1999 is VND 2,450 million + VND 8,602 million = VND 11, 052.

-------------

+ Step 3: Calculate the compensation co-efficient over the years by dividing the cumulative compensation amount of a year by that of the preceding year.

Year of loss occurrence

Compensation co-efficient

1/0

2/1

3/2

4/3

5/4

6/5

7/6

1997

1,580

1,285

1,128

1,048

1,027

1,032

1,013

1998

1,596

1,146

1,079

1.090

1,084

1,027

1999

1,812

1,180

1,200

1,110

1,029

2000

1,568

1,316

1,206

1,107

2001

1,668

1,219

1,201

2002

1,576

1,269

2003

1,574

Average compensation co-efficient

1,625

1,236

1,163

1,089

1,047

1,030

1,013

Then, calculate the average compensation co-efficient from year 0 to year 1, from year 1 to year 2, from year 2 to year 3… by calculating the mean value of the compensation co-efficient of each column of the table above.

+ Step 4: Use the average compensation co-efficient calculated in step 3 for projecting the cumulative compensation amount of each year for losses occurring in the years 1997, 1998,… 2004 (bold and italic figures in the table below):

Unit: VND million

Year of loss occurrence

Year of compensation

0

1

2

3

4

5

6

7

1997

5,445

8,602

11,052

12,464

13,064

13,416

13,847

14,032

1998

5,847

9,333

10,699

11,547

12,592

13,646

14,015

14,197

1999

5,981

10,835

12,783

15,337

17,017

17,506

18,031

18,266

2000

7,835

12,288

16,176

19,511

21,599

22,614

23,293

23,595

2001

9,763

16,280

19,843

23,827

25,948

27,167

27,982

28,346

2002

10,745

16,929

21,478

24,979

27,202

28,481

29,335

29,716

2003

14,137

22,253

27,505

31,988

34,835

36,472

37,566

38,055

2004

15,162

24,638

30,453

35,417

38,569

40,382

41,593

42,134

According to the table above (line of year 2004):

The cumulative compensation amount of 2005 (compensation year 1) divided by losses occurring in 2004: VND 15,162 million x 1.625 = VND 24,638 million (1.625 is the average compensation co-efficient from year 0 to year 1).

The cumulative compensation amount of 2006 (compensation year 2) divided by losses occurring in 2004: VND 24,638 million x 1.236 = VND 30,453 million (1.236 is the average compensation co-efficient from year 1 to year 2).

The cumulative compensation amount of 2007 (compensation year 3) divided by losses occurring in 2004: VND 30,453 million x 1.163 = VND 35,417 million (1.163 is the average compensation co-efficient from year 2 to year 3).

------------------

The cumulative compensation amount of each year for losses occurring in 2003, 2002,… 1998 is calculated in the same way as for 2004.

+ Step 5: Project the compensation reserve:

The compensation reserve as of December 31, 2004 is projected to be the total amount projected to be compensated for losses occurring in 1997, 1998,…, 2004 less the total amount already compensated for such losses as of December 31, 2004, in which:

The total amount projected to be compensated for losses occurring in 1997, 1998,…2004 is the cumulative compensation amount of compensation year 7 in the table above.

The total amount already compensated for losses occurring in 1997, 1998,… 2004 as of December 31, 2004 is the cumulative compensation amount lying on the diagonal line of the table above.

Unit: VND million

Year of loss occurrence

Year of compensation

Calculation of the projected compensation reserve as of 31/12/2004

0

1

2

3

4

5

6

7

Total amount projected to be compensated

Total amount already compensated as of 31/12/ 2004

Projected compensation reserve

1997

14,032

14,032

14,032

0

1998

14,015

14,197

14,197

14,015

182

1999

17,506

18,266

18,266

17,506

760

2000

21,599

23,595

23,595

21,599

1,996

2001

23,827

28,346

28,346

23,827

4,519

2002

21,478

29,716

29,716

21,478

8,238

2003

22,253

38,055

38,055

22,253

15,802

2004

15,162

42,134

42,134

15,162

26,972

TOTAL

208,341

149,872

58,469

So, with the above-said compensation statistics, the projected compensation reserve of the insurance operation we are studying as of December 31, 2004 is VND 58,469 million.

3.4.3. The compensation reserve for big loss fluctuations:

The compensation reserve for big loss fluctuations shall be set up annually till it is equal to the premium amount actually retained in the fiscal year by an insurance enterprise. The annual reserve shall be set up by the statistical method.

4. For life insurance business enterprises:

4.1. Life insurance business enterprises must set up insurance operation reserves as provided for in Article 9 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises.

4.2. Life insurance business enterprises may opt for the method of setting up non-life insurance operation reserves under the guidance at Point 4.4, Clause 4, Section III of this Circular or other more prudent methods and bases for making setting up operation reserves but must obtain the Finance Ministry's written approval thereof before application.

For insurance products already approved by the Finance Ministry, the enterprises must apply the methods and bases for setting up the insurance reserves under the provisions of Point 4.4, Clause 4, Section III of this Circular or other more prudent methods and bases for setting up operation reserves for insurance contracts concluded from January 1, 2006 on.

4.3. Life insurance business enterprises must not change the methods and bases for setting up insurance operation reserves in a fiscal year. In case of change of such methods and bases in the following fiscal year, life insurance business enterprises must seek the Finance Ministry's written approval before application.

4.4. Method of setting up life insurance operation reserves:

a/ The mathematical reserve:

- The method of setting up this reserve is the method of net premiums adjusted by Zillmer co-efficient of 3% of the insurance sum. The adjusted net insurance premium is used for calculating the reserve must not be higher than 90% of the actually collected insurance premium amount.

- The reserve calculation method: The mathematical reserve by the method of net premiums adjusted by Zillmer co-efficient of 3% of the insurance amount shall be calculated on the following principle:

Mathematical reserve

=

Current value of

total insurance

sum payable in future

-

Current value of total net premiums adjusted by Zillmer coefficient of 3% of the insurance amount collectible in future

- The reserve calculation bases: Life insurance business enterprises shall use the following bases for calculating the mathematical reserve:

+ The mortality table included in an appendix to this Circular (The mortality table CSO 1980) (not printed herewith):

+ The maximum technical interest rate equal to 80% of the interest rate of Government bonds with a 10-year term at the nearest time before the time of request for approval of the method and bases for setting up the reserve.

- The mathematical reserve is deemed to be zero in cases where it is a negative number as result of the calculation based on the above-said method and bases.

b/ The unearned premium reserve:

- To be applicable to contracts of a term of under one year:

- The method of setting up the reserve: Method 1/24 or method of making setting up the premium reserve on a daily basis.

c/ The compensation reserve:

To be set up by the dossier-based method with the amounts calculated on the basis of counting up the insurance sum payable for each compensation claim dossier already filed with the insurance enterprises but not yet settled by the end of the fiscal year.

d/ The profit-sharing reserve:

To be applicable only to contracts involving the sharing of profits accrued through the years of insurance contracts and calculated according to the following formula:

Profit - sharing reserve

=

Total profit publicized to be shared to the contract owner in the fiscal year

+

Accrued value of the profit publicized to be shared to the contract owner in the previous fiscal years but not yet paid thereto

e/ The balance assurance reserve: To be set up annually till it is equal to 5% of the insurance premium amount collected by an insurance enterprise in a fiscal year. The reserve to be set up annually is equal to 1% of the pre-tax profit of each insurance enterprise.

IV. CAPITAL INVESTMENT

Insurance enterprises shall invest their capital under the provisions of Section 3, Chapter II of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises.

V. SOLVENCY OF INSURANCE ENTERPRISES

1. The insurance enterprises must maintain their solvency throughout the process of their insurance business activities under the provisions of Article 14 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises.

2. An insurance enterprise is in danger of insolvency when its solvency limit is lower than the minimum one.

3. The minimum solvency limit:

a/ The minimum solvency limit of a non-life insurance business enterprise is equal to 20% of the total amount of insurance premiums actually retained at the time of determination of the solvency limit.

For example: At the time of determination of its solvency limit, insurance enterprise A, which conducts non-life insurance business, has VND 1,000 billion as total amount of retained insurance premiums. Its minimum solvency limit will be VND 1,000 billion x 20% = VND 200 billion.

b/ The minimum solvency limit of life insurance business enterprises:

- For life insurance contracts with a term of 10 years or under, it is equal to 4% of the insurance operation reserve plus 0.1% of the insurance sum at risk;

- For life insurance contracts with a term of over 10 years, it is equal to 4% of the insurance operation reserve plus 0.3% of the insurance sum at risk.

For example: At the time of determination of its solvency limit, insurance enterprise B, which is engaged in life insurance business, has:

+ VND 200 billion as operation reserve for life insurance contracts with a term of 10 years or under.

+ VND 20,200 billion as total insurance amount of life insurance contracts with a term of 10 years or under.

+ VND 300 billion as operation reserve for life insurance contracts with a term of over 10 years.

+ VND 50,300 billion as total insurance amount of life insurance contracts with a term of over 10 years.

The minimum solvency limit of insurance enterprise B will be: (4% x VND 200 billion) + 0.1% (VND 20,200 billion - VND 200 billion) + (4% x VND 300 billion) + 0.3% (VND 50,300 billion - VND 300 billion) = VND 8 billion + VND 20 billion + VND 12 billion + VND 150 billion = VND 190 billion.

4. The solvency limit of an insurance enterprise is the difference between the asset value and the liabilities of the insurance enterprise. The following assets must not be included for calculation of the solvency limit of an insurance enterprise:

4.1. Contributed capital amounts for establishing other insurance enterprises from the source of owner's equities of the insurance enterprise;

4.2. Irrecoverable debts according to current law provisions;

4.3. Reward and/or welfare funds (if any).

VI. TURNOVER AND EXPENDITURES OF INSURANCE ENTERPRISES

1. Turnover:

1.1. Turnover of an insurance enterprise consists of revenues as specified in Article 19 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises, including:

a/ Turnover from insurance business activities: Collected principal insurance premiums, charges for re-insurance acceptance; collected commissions for re-insurance ceding, collected charges for agency services including loss assessment, consideration and payment of compensations, request of indemnification by a third party, handling of 100% compensated goods; collected charges for loss assessment, excluding the assessment requested among internal accounting member units within the same independent accounting insurance enterprise, subtracting the to be-spent amounts for revenue reduction such as refunded insurance premiums, reduced insurance premiums charges for re-insurance ceding, refunded charges for re-insurance acceptance, reduced charges for re-insurance acceptance; refunded commissions for re-insurance ceding; reduced commissions for re-insurance ceding.

b/ Turnover from financial activities: Revenues from investment activities as specified in Section 3, Chapter II of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises; revenues from the sale and purchase of securities; collected interests on escrow amounts; revenues from the lease of assets; reimbursed balance of the reserve for decrease in the securities prices and revenues from other financial activities as provided for by law.

c/ Incomes from other activities: Proceeds from the sale and liquidation of fixed assets; recovered bad debts which had been written off; collected fines on contractual breaches and other revenues as provided for by law.

1.2. The principles for determination of turnover:

a/ Turnover from insurance business activities, which consists of receivable amounts arising in the period, shall be determined according to the following principle:

- Insurance enterprises shall account the collected principal premiums as incomes when their insurance liabilities arise toward the insurance buyers under the provisions of Article 15 of the Insurance Business Law. Specifically:

+ Insurance enterprises shall account as incomes when the insurance contracts have been concluded between the insurance enterprises and the insurance buyers or there is evidence that the insurance enterprises have accepted insurance and the insurance buyers have paid insurance premiums.

+ Insurance enterprises have agreed to allow the insurance buyers to owe insurance premiums. In this case, insurance enterprises must still account as incomes the premium amounts owed by the insurance buyers though such amounts have not yet been paid by the insurance buyers.

+ Enterprises have agreed with the insurance buyers on the periodical payment of insurance premiums. In this case, insurance enterprises shall account as incomes corresponding to the period or periods during which the insurance premiums have been paid and must not account as incomes the premium amounts not yet due for payment by the insurance buyers as agreed upon.

- For the remaining revenues: Insurance enterprises shall account them as incomes right after the economic activities arise and there is evidence of acceptance of payment by the involved parties, regardless of whether they have been received.

- For amounts to be spent in order to reduce revenues: Insurance enterprises shall account them as income decrease immediately after the economic activities arise and there is evidence of acceptance of payment by the involved parties, regardless of whether they have been paid.

b/ Turnover from financial activities is the receivable amount arising in the fiscal year.

c/ Incomes from other activities mean all proceeds from the sale of goods and the provision of services after subtracting (-) decreased amounts in the prices of sold goods or returned sold goods (if they are accompanied with valid vouchers), which the customers accept to pay, regardless of whether or not they have been received.

1.3. The insurance enterprises' revenues arising in the period must be accompanied with valid invoices or vouchers and fully accounted as turnover.

2. Expenditures:

2.1. The insurance enterprises' expenditures, which are payable and deductible amounts arising in the period as specified in Article 20 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises, include:

2.1.1. Expenditures on business insurance activities:

a/ Compensations paid for principal insurance, for non-life insurance, paid insurance amounts, for life insurance; compensations paid for re-insurance acceptance upon the occurrence of insured events as committed in insurance contracts or re-insurance contracts, subtracting the receivable amounts in order to reduce costs such as collected compensations for re-insurance transfer, indemnities collected from third parties, collected goods which have been handled and compensated 100%;

b/ The operation reserves set up as provided for in Section III of this Circular;

c/ Insurance commissions paid as provided for at Point 5, Section II of the Finance Ministry's Circular No. 98/2001/TT-BTC of October 19, 2001 guiding the implementation of the Government's Decree No. 42/2001/ND-CP of August 1, 2001 detailing the implementation of a number of articles of the Insurance Business Law;

d/ Expenses for loss assessment under the provisions of Article 26 of the Government’s Decree No. 42/2001/ND-CP of August 1, 2001 detailing the implementation of a number of articles of the Insurance Business Law;

e/ Expenses for agency services, including loss assessment, consideration and payment of compensations, request for indemnification by third parties;

f/ Expenses for handling of 100% compensated goods;

g/ Expenses for management of insurance agents;

h/ Expenses for loss prevention and restriction as provided for in Section IX of the Finance Ministry's Circular No. 98/2004/TT-BTC of October 19, 2004 guiding the implementation of the Government's Decree No. 42/2001/ND-CP of August 1, 2001 detailing the implementation of a number of articles of the Insurance Business Law;

i/ Expenses for assessment of risks of the insured, including expenses for gathering of information on, investigation and evaluation of, the insured;

j/ Salaries, wages, bonuses, severance allowances and amounts of wage or salary nature according to relevant law provisions applicable to each type of enterprise;

k/ Social insurance and health insurance payable according to law provisions;

l/ Other expenses according to the relevant law provisions applicable to each type of enterprise.

2.1.2. Expenditures on financial activities, which are amounts to be spent in the fiscal year, include:

a/ Expenses for investment activities as provided for in Section 3, Chapter II of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises;

b/ Interests paid to life insurance contract owners as committed in the signed insurance contracts;

c/ Expenses for the lease of assets;

d/ Banking fees and loan interests;

e/ The reserve set up for decrease in the securities prices.

f/ Other expenses as provided for by law.

2.1.3. Expenditures on other activities, which are amounts to be spent in the fiscal year, include:

a/ Expenses for the sale and liquidation of fixed assets;

b/ Expenses for the recovery of forgiven bad debts which are now recoverable;

c/ Fines for contractual breaches;

d/ Other expenses as prescribed by law.

2.2. Insurance enterprises must not account as expenditures the following amounts:

a/ Fines paid by collectives and individuals for their law violations;

b/ Expenses for capital construction investment, procurement of fixed assets, allowances for laborers meeting with difficulties, donations for organizations and individuals according to the relevant law provisions applicable to each type of enterprise;

c/ Non-business expenses, rewards, welfare expenses, regular and irregular difficulty allowances, and other expenses covered by other funding sources;

d/ Other unreasonable expenses as prescribed by law.

3. Funds of insurance contract owners and funds of owners of life insurance business enterprises:

a/ Life insurance enterprises must separate and separately account the source of owner's capital from the source of insurance premiums collected from insurance buyers (hereinafter called the owners' fund and the insurance contract owners' fund for short).

b/ The enterprises' assets must be recognized accordingly for the insurance contract owners' fund and the owners' fund.

c/ All revenues collected by life insurance enterprises, which are associated with business transactions of the insurance contract owners' fund (including also incomes from the fund's property investment operations), must be accounted for the insurance contract owners' fund.

d/ Assets created from the insurance contract owners' fund shall be used to fulfill the liabilities and expenses associated with the business transactions of this fund. Insurance enterprises must not use the insurance contract owners' funds' assets for paying fines imposed on law violation acts or economic contract breaches committed by life insurance enterprises.

e/ Where an insurance contract owners' fund has a surplus (the difference between the assets and liabilities of the fund) at the end of a fiscal year, life insurance enterprises may divide part of the whole of such surplus to the insurance contract owners and owners after obtaining the approval of the certified actuaries.

f/ The provisions on the insurance contract owners' funds and owners' funds of life insurance enterprises shall apply from January 1, 2006.

VII. TURNOVER AND EXPENDITURES OF INSURANCE BROKERAGE ENTERPRISES

1. Turnover

Turnovers of insurance brokerage enterprises as prescribed in Article 22 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises, include:

1.1. Turnover from insurance brokerage activities, consisting of receivable amounts arising in the period.

1.2. Turnover from financial activities, consisting of receivable amounts arising in the fiscal year.

1.3. Incomes from other activities, consisting of all proceeds from the sale of goods and the provision of services after subtracting (-) the decreased amounts of the prices of sold goods, returned sold goods (if they are accompanied with valid vouchers), which the customers accept to pay, regardless of whether they have been collected or not.

2. Expenditures

2.1. The insurance brokerage enterprises' expenditures consist of payable amounts arising in the period as prescribed in Article 23 of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises.

2.2. The insurance brokerage enterprises' expenditures arising in the period must be accompanied with valid invoices or vouchers.

VIII. PROFITS AND DISTRIBUTION OF PROFITS

Profits and distribution of profits of insurance enterprises and insurance brokerage enterprises shall comply with the provisions of Chapter V of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime for insurance enterprises and insurance brokerage enterprises.

IX. REPORTING REGIME

Insurance enterprises and insurance brokerage enterprises shall have to make and send financial statements, statistical reports and operation reports according to current law provisions.

1. Financial statements:

1.1. Insurance enterprises and insurance brokerage enterprises shall carry out final financial settlement and observe all regulations on financial statements, make and send financial statements to the State's finance offices, the statistic offices and tax offices according to current law provisions.

1.2. Accounting balance sheets as well as business result and cash flow reports must be certified by independent auditing organizations licensed to operate in Vietnam.

2. Statistical reports, operation reports: Insurance enterprises and insurance brokerage enterprises shall make and send to the Ministry of Finance quarterly and annual statistical reports and operation reports, specifically as follows:

- For non-life insurance business enterprises:

+ Report on the insurance premium turnover: according to form No. 1-PNT

+ Report on insurance compensation: according to form No. 2-PNT

+ Report on the payment of insurance commissions: according to form No. 3-PNT

+ Report on deductions for setting up the operation reserves: according to form No. 4-PNT

+ Report on investment activities: according to form No. 5-PNT

+ Report on solvency: according to form No. 6-PNT (insurance enterprises shall make annual reports only).

- Particularly for Vietnam National Reinsurance Company, apart from the reports made according to forms No. 4-PNT, No. 5-PNT and No. 6-PNT above, it must make and send also the following reports:

+ Report on reinsurance turnover: according to form No. 1-TBH

+ Report on reinsurance compensation: according to form No. 2-TBH

+ Report on collection and payment of reinsurance commissions: according to form No. 3-TBH

- For life insurance business enterprises:

+ Report on the number of contracts and the life insurance amounts: according to form No. 1-NT

+ Report on life insurance premium turnover: according to form No. 2-NT

+ Report on the payment of life insurance amounts: according to form No. 3-NT

+ Report on life insurance commissions: according to form No. 4-NT

+ Report on the cancellation of life insurance contracts: according to form No. 5-NT

+ Report on the deductions for setting up the operation reserve: according to forms from No. 6-NT(A) to 6-NT(E)

+ Report on investment activities: according to form No. 7-NT

+ Report on solvency: according to form No. 8-NT (insurance enterprises shall make annual reports only).

- For insurance brokerage enterprises: According to the form of report on insurance brokerage activities - form No. 1-MGBH.

- Quarterly reports: Insurance enterprises must make and send them to the Ministry of Finance within 30 days after the end of each quarter.

- Annual reports: Insurance enterprises must make and send them to the Ministry of Finance within 90 days after the end of each fiscal year.

3. Financial publicity for insurance enterprises and insurance brokerage enterprises: On a quarterly basis, insurance enterprises and insurance brokerage enterprises must make and send financial statements to State management bodies stated at Point 1, Section IX of this Circular.

4. Examination and inspection of the observance of financial regimes

The Managing Boards, the general directors (directors) of insurance enterprises and insurance brokerage enterprises shall have to give explanations on relevant financial issues at the requests of State management bodies performing State management functions according to law provisions.

4.1. Insurance enterprises and insurance brokerage enterprises shall be accountable for the accuracy and truthfulness of their financial statements. The financial supervisions shall be conducted in the following forms:

a/ Periodical or unexpected examination;

b/ Examination by topic according to the financial management requirements.

4.2. Insurance enterprises and insurance brokerage enterprises, which violate the State’s financial regimes, shall be sanctioned according to law provisions.

X. PUBLICIZATION OF INFORMATION OF INSURANCE ENTERPRISES

1. Insurance enterprises and insurance brokerage enterprises must disclose information in a timely and accurate manner strictly according to law provisions and take responsibility for the accuracy of the disclosed information according to law provisions.

2. Within 120 days as from the last day of the fiscal year, insurance enterprises and insurance brokerage enterprises must publicize the audited financial statements, including the following specific information:

2.1. Business results in the fiscal year, turnover, profits, total of operation reserve funds, total compensated amounts and paid insurance sums.

2.2. Owner's capital, percentages of founding members' capital contributed to the owner's capital;

2.3. General director (director), Managing Board chairman,

Information shall be disclosed on the mass media.

XI. ORGANIZATION OF IMPLEMENTATION

1. This Circular takes effect 15 days after its publication in the Official Gazette and applies as from January 1, 2005.

2. The Finance Ministry's Circular No. 72/2001/TT-BTC of August 28, 2001 guiding the implementation of the Government's Decree No. 43/2001/ND-CP of August 1, 2001 prescribing the financial regime applicable to insurance enterprises and insurance brokerage enterprises shall cease to be effective as from the date this Circular becomes effective.

3. Any problems arising in the course of implementation should be reported to the Ministry of Finance for consideration and settlement.

For the Minister of Finance

Vice Minister
LE THI BANG TAM